Donovan v. Brown Equipment and Service Tools, Inc., No. 80-1708

• Court: United States Courts of Appeals. United States Court of Appeals (5th Circuit)
• Writing for the Court: Before GEE and RUBIN; RUBIN
• Citation: 666 F.2d 148
• Parties: 25 Wage & Hour Cas. (BN 306, 92 Lab.Cas. P 34,122 Raymond J. DONOVAN, Secretary of Labor, United States Department of Labor, Plaintiff-Appellant, v. BROWN EQUIPMENT AND SERVICE TOOLS, INC., Defendant-Appellee.
• Decision Date: 21 January 1982
• Docket Number: No. 80-1708

Page 148

666 F.2d 148 25 Wage & Hour Cas. (BN 306, 92 Lab.Cas. P 34,122 Raymond J. DONOVAN, Secretary of Labor, United States
Department of Labor, Plaintiff-Appellant,
v.
BROWN EQUIPMENT AND SERVICE TOOLS, INC., Defendant-Appellee. No. 80-1708. United States Court of Appeals,
Fifth Circuit. Jan. 21, 1982.

Page 151

Donald S. Shire, Paula W. Coleman, U. S. Dept. of Labor, Washington, D. C., for plaintiff-appellant.

Charles R. Vickery, Jr., Houston, Tex., for defendant-appellee.

Appeal from the United States District Court for the Southern District of Texas.

Before GEE and RUBIN, Circuit Judges, and SPEARS ^*, District Judge.

RUBIN, Circuit Judge:

The Fair Labor Standards Act requires the payment of time and one-half an employee's regular rate of pay for each hour worked in excess of forty in any workweek. As an exception to this general rule, the Act permits an employer to establish a pay plan, eponymously called a "Belo plan" after the employer whose such plan was first approved by the Supreme Court, guaranteeing a set weekly wage for all hours worked in a week up to sixty. The Secretary contends that the alleged Belo plan used by Brown Equipment and Service Tools, Inc. ("BEST") did not comply with the statutory requirements, as administratively interpreted, for such plans, and that, therefore, its employees were not paid the amounts due them. He seeks both an injunction requiring BEST to pay its employees the sums due them and an injunction restraining BEST from committing any future violations of the Act. Having meanwhile abandoned the challenged plan, BEST contends that it did not violate the statute but that, even if it did, no injunction is warranted. Vaulting the dispute concerning whether BEST's Belo plan was valid, the district court held that, because BEST was in good faith when it adopted the plan and is now unquestionably complying with the Act, any injunction would be punitive and unfair to BEST. Examining the record, we conclude that BEST's plan was not a valid Belo plan, the statute requires that an injunction be issued to assure that the backwages consequently due BEST's employees are paid, but, BEST having complied with the statute

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in every other respect, denial of a general injunction against violation of the Act in the future was warranted.

I. The Validity of BEST's Belo Plan.

BEST provides remedial and emergency services for oil and gas wells, both on land and off shore. It employs servicemen who, at the call of BEST's customers, go to the customers' drilling sites to perform the services required. When not thus engaged, the employees work in BEST's shop, where they maintain equipment, train helpers, and provide support for workers in the field.

In August 1973, BEST adopted a guaranteed pay plan for its field service employees. The plan provided each employee a guarantee of pay for sixty hours of work each week, the first forty to be paid at a specified hourly rate, and the next twenty at time-and-a-half that rate. The employee's actual pay was greater than the guarantee, however, whenever one or both of two conditions occurred: (1) the employee actually worked in excess of sixty hours in a week; or (2) the employee earned production bonuses in that week. If the employee earned such bonuses, the hourly rate was "adjusted;" this, in turn, "adjusted" the overtime rate. ¹

NOTE: OPINION CONTAINS TABLE OR OTHER DATA THAT IS NOT VIEWABLE

The Fair Labor Standards Act, 29 U.S.C. § 201 et seq. (1976 & Supp. III 1979) (references hereafter are to the 1976 ed. unless otherwise noted), fixes not only minimum wages but also maximum hours, forty in a workweek, unless the employee receives compensation for the hours in excess of forty at a rate not less than one and one-half times the "regular rate at which he is employed," 29 U.S.C. § 207(a)(1). The purposes of the overtime requirement are two-fold: (1) to spread employment by placing financial pressure on the employer to hire additional workers rather than employ the same number of workers for longer hours; and (2) to compensate employees who do work "overtime" for the burden of having to do so. Walling v. Helmerich & Payne, Inc., 323 U.S. 37, 40, 65 S.Ct. 11, 13, 89 L.Ed. 29, 33 (1944). See also Walling v. Youngerman-Reynolds Hardwood Co., 325 U.S. 419, 423-24, 65 S.Ct. 1242, 1244, 89 L.Ed. 1705, 1709-10 (1945); Jewell Ridge Coal Corp. v. Local 6167, UMW, 325 U.S. 161, 167, 65 S.Ct. 1063, 1067, 89 L.Ed. 1534, 1539 (1945); Overnight Motor Transportation Co. v. Missel, 316 U.S. 572, 578, 62 S.Ct. 1216, 1220, 86 L.Ed. 1682, 1688 (1942). Therefore, the Act forbids pay plans that have the effect of reducing the pay for overtime to less than one and one-half times the employee's "regular rate," even though the plans may be acceptable to the employees involved.

The Supreme Court early recognized, however, that jobs requiring irregular

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workweeks present unusual problems both for workers and employers and found implicit exception in the original statute for pay plans guaranteeing a regular weekly rate for those workers whose hours inescapably fluctuate from week to week. Walling v. A. H. Belo Corp., 316 U.S. 624, 62 S.Ct. 1223, 86 L.Ed. 1716 (1942). See also Walling v. Halliburton Oil Well Cementing Co., 331 U.S. 17, 67 S.Ct. 1056, 91 L.Ed. 1312 (1947). The principles of these cases were incorporated into the statute in 1949, when Congress enacted a narrow exception to the overtime requirement for a carefully defined category of guaranteed wage plans. ² Under section 7(f), 29 U.S.C. § 207(f), ³ these plans qualify as an exception to the usual overtime pay requirements only if they meet each of the conditions specified in the statute. First, the duties of the employee must "necessitate irregular hours of work." 29 U.S.C. § 207(f). Second, the employee must be employed pursuant to a bona fide individual contract or collective bargaining agreement. Id. Third, that contract must "specif(y) a regular rate of pay" for hours up to forty and one and one-half times that rate for hours over forty. Id. at § 207(f)(1). Finally, the contract must provide a weekly pay guarantee for not more than sixty hours, based on the specified rates. Id. at § 207(f)(2).

Such plans secure employees whose work necessitates wide and unpredictable fluctuations in hours against "short" paychecks in weeks when they work very few hours. A fixed wage gives such employees "the security of a regular weekly income" so that they can operate on a stable budget. Walling v. A. H. Belo Corp., supra, 316 U.S. at 635, 62 S.Ct. at 1229, 86 L.Ed. at 1723. ⁴ The employer also benefits, for it can both more accurately forecast its labor costs and also work its employees a modest amount of overtime without increasing those costs. See Marshall v. Hamburg Shirt Corp., 577 F.2d 444, 446 (8th Cir. 1978).

Exemptions from or exceptions to the Act's requirements are to be narrowly construed against the employer asserting them. Arnold v. Ben Kanowsky, Inc., 361 U.S. 388, 392, 80 S.Ct. 453, 456, 4 L.Ed.2d 393, 396 (1960); Wirtz v. Jernigan, 405 F.2d 155, 158 (5th Cir. 1968). See also Usery v. Godwin Hardware, Inc., 426 F.Supp. 1243, 1263 (W.D.Mich.1976). That precept applies to Belo plans, which qualify the Act's overtime provisions. Furthermore, an employer who invokes the Belo exception has the burden of showing affirmatively that each of the essential conditions to the exception are met. Foremost Dairies, Inc. v. Wirtz, 381 F.2d 653, 656 n.4 (5th Cir. 1967), cert. denied, 390 U.S. 946, 88 S.Ct. 1031, 19 L.Ed.2d 1134 (1968). BEST's guaranteed wage plan was not a qualified Belo plan because it failed to meet at least two of the statutory conditions: (1) the employees' duties did not necessitate "irregular hours

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of work" within the meaning of the statute and (2) the rate of pay specified in the contract did not qualify as a regular rate.

A. Irregular Hours of Work

As used in the statute, the term, "irregular hours of work," does not mean merely a fluctuating long workweek, consisting only or mostly of variations in the hours required over forty. For hours to be considered irregular within the meaning of section 7(f), they must, in a significant number of weeks, fluctuate both below forty hours per week as well as above, and the fluctuations below forty must result from work requirements, not vacations, holidays, illness or reasons personal to the employee. ⁵ This follows from one of the basic purposes of the exception, to protect employees against "short" paychecks when the nature of their work requires weeks of substantially fewer than forty hours.

It is undisputed that the field work performed by BEST's employees involved irregular hours, but virtually all were in the overtime range. When not working in the field, the employees, pursuant to BEST's policy of a minimum 40-hour workweek, regularly worked full workweeks in the shop maintaining equipment, training new employees, and providing support services to workers in the field. As a result, all but 12.8% of the weeks worked were overtime weeks-and approximately half of the short workweeks were explained on the employer's payroll records as attributable to typical personal leaves (e.g., vacations or illnesses) or first or last week of work. In the remaining 6.9% of the short workweeks, "day off" was listed in the employer's records (2%) or no reason was given at all (4.9%). ⁶

BEST's guaranteed pay plan was deficient because its employees worked less than forty hours in only a small number of weeks, excluding short weeks due to first or last week of work, holidays, vacations, illnesses and other personal reasons. Therefore, BEST failed to show the kind of irregularity in nonovertime hours necessary for the valid use of a Belo plan. The cause of even the slight irregularity in nonovertime hours was not lack of work. Employees testified that they "never" or "rarely" missed a day of work due to a shortage or...